Australia-China FTA Negotiations

Launch of negotiations

Prime Minister John Howard and Chinese Premier Wen Jiabao agreed on 18 April in Beijing to launch negotiations on a free trade agreement (FTA) between Australia and China.

The decision to proceed to negotiations followed completion of the joint feasibility study that showed there would be substantial economic and trade benefits to each side from an FTA.

Negotiating process

Negotiating rounds will take place in both Australia and China.  In launching the introductory round of talks in Sydney on 23 May 2005, Trade Minister Mark Vaile said that senior trade officials would operate on the principle that negotiations would “be comprehensive, covering agriculture, goods, services and investment, and be completed as a single undertaking”.

The Australian negotiating team is led by Ric Wells from the Department of Foreign Affairs and Trade, and comprises representatives from relevant federal government agencies.  The Chinese negotiating team is led by Dr Zhang Xiangchen from the Chinese Ministry of Commerce.

Discussions during early negotiating rounds are being divided into four working groups covering agriculture, trade in goods, trade in services, investment and other trade facilitation issues.

A second round of talks from 22 to 24 August will enable working group heads to meet for the first time, to develop a clear understanding of each country’s trade and investment regimes.  This will be crucial for the negotiations.  It may take some time to build a clear and detailed picture of China’s regime as it affects Australian businesses and investors given the size and complexity of China’s economy.

The two sides will also begin to discuss the structure and content of the FTA.

Negotiating timeline

The Australian Government is not putting a timeframe on the negotiations – it will spend as much time as is required to negotiate a high-quality agreement that contains commercially meaningful outcomes for Australian businesses and is consistent with the rules of the World Trade Organization (WTO).

Consulting the community

Since the launch of FTA negotiations, the Government has been consulting extensively with interested Australian stakeholders and has received many submissions from industry and the broader community outlining their interests and concerns.  This will continue throughout the negotiating process.  E-mail updates are sent to subscribers through the DFAT website.

The Government has met with Australian companies in all State and Territory capital cities and those operating in China, to hear their aims in the Chinese market and the difficulties they face.  The information we are gathering will help to formulate our negotiating priorities and positions.

For this phase of the negotiations, our focus is on gaining a clear and precise understanding of China’s trading system.  For Australia this is a particularly important task in light of feedback we have been receiving from industry on areas of interest in the Chinese market.

Understanding how barriers affect Australian trade and investment with China will help us to develop ways to overcome those barriers and to negotiate preferential concessions through an FTA.

Australian sectoral interests and concerns

Australian companies have highlighted many areas of interest and concern during our consultations.  These are set out in the accompanying fact sheets.  Broadly, the issues raised cover:

• border barriers – tariffs, as well as tariff rate quotas in agriculture, and the administration of those systems, which can be complex
• standards and quarantine issues
• customs procedures
• intellectual property rights protection
• discrimination against foreign suppliers of services exports
• investment-related issues
• the overall business environment and the legal framework, including a sense of lack of transparency and regulatory uncertainty
• a desire to position Australia as a preferred destination or supplier against third-country competitors
• concern about increased competition from China.

Other themes and concerns

Not all of the issues raised with us during consultations and through public submissions are within the scope of a trade negotiation.  Nor is an FTA an effective instrument through which some of these problems can be addressed in a practical way.  Issues that the Government would therefore not expect to take-up in the FTA negotiations include, for example:

• China’s currency regime: Australia regards China’s currency policy as a matter for China to decide.
• China’s taxation system: It is China’s sovereign right to set and implement its taxation regime as it sees fit, consistent with its WTO obligations.
• The resolution of existing contractual disputes: But to the extent that there are regulatory problems that inhibit their resolution or access to legal remedy, this might be an issue the Government can take up in the negotiations.

Broadly, three other themes have generated comment from many quarters:

Governance:

Some of the difficulties of doing business in China are tied up with the nature of government in China.  Through the negotiation of an FTA, we cannot, and will not seek to, recreate the Chinese economy in our own image.

We will, however, take up a range of “behind the border” barriers in the FTA negotiations.  Some are areas in which we will probably not achieve preferential treatment for Australian companies as they are not like tariffs or regulations for entry into the services sector.

But we are aware of the real concern of Australian businesses over such issues as transparency and intellectual property rights protection, and we will seek practical mechanisms or processes that can help Australian companies that are facing problems in these areas.

China’s growing competitiveness:

Concern has been expressed that an FTA would have a negative impact on some Australian industries, especially given the growing size and competitiveness of China’s industries compared with Australia’s (for example, horticulture and manufacturing).

The fact is, China’s rapid economic growth and increasing competitiveness will be a challenge for particular Australian industries regardless of whether we have an FTA with China or not.  Australia has an open and transparent trading regime and China already has liberal access to our market.

Tariff protection in Australia is already low, and competition from lower-cost production in China and other countries is a fact of life.  Particular Australian industries have already been adjusting to the challenge through shifting to new areas of competitive advantage, including by moving higher up the value-added chain, developing products for niche markets, and filling gaps in consumer demand.

An FTA offers us the opportunity to set the terms for future trade – to strengthen the competitive position of Australian exporters and investors, particularly relative to other foreign competitors, by reducing tariff and other barriers to trade and investment.  An FTA can open up the Chinese market, so that Australian exporters can take advantage of the opportunities that it offers.

China’s trade with the rest of the world is growing, too.  The Australian Government’s ambitious trade agenda, including negotiating FTAs with other trading partners, is also helping to ensure that Australian exports to other countries remain competitive.  Combined with our FTAs with Singapore, Thailand and the United States, our negotiations with ASEAN, Malaysia and the United Arab Emirates are seeking to assist Australian exporters compete with China in other markets.

China’s human rights, labour and environment standards:

The Government has taken a decision not to mix the discussion of human rights, labour and environment standards into the negotiation of trade agreements – we do not consider this to be an effective way of dealing with any of the issues.  But these are important issues for the Government and the Australian community, and the Government has developed specific mechanisms to deal with them.  We maintain high-level and ongoing discussion with the Chinese through the Australia-China Human Rights Dialogue, and we also take up these issues in international organisations such as the International Labour Organization and the United Nations Environment Program.

The Australian aid program also has a strong focus on improving living standards in China.  Australia’s Development Co-operation Program with China is currently delivering $38 million of programs based around improving economic and political governance (including a $1.8 million program to address human rights issues).  We also deliver a substantial health program and share our considerable expertise on environmental management.

Australian mining and energy companies and others have raised the issue of mining safety.  Industry has advocated the adoption of Australian standards and practical technical cooperation in this area.

Staying ahead of the pack – competing with China’s other FTAs

The Chinese Government is negotiating more and more bilateral and regional trade deals.  China already has FTAs in place with Hong Kong, Macau and a goods-only agreement with the ten members of the Association of Southeast Asian Nations (ASEAN), with negotiations continuing on services.  China is also negotiating FTAs with other countries where industries compete with ours – including New Zealand, Chile, members of the Gulf Cooperation Council, and of the Southern African Customs Union – and is exploring the possibility of FTAs with Japan, Korea and India.

As China explores free trade agreements with our competitors, it is vital that we seek to maintain – or improve – our market position through our own FTA.

Taking up Australian industry’s interests and concerns

For Australia, an FTA must be comprehensive and deliver commercial benefits for Australian companies across the board.

The Australian Government’s negotiating position will be strengthened by having as much specific information as possible from Australian companies – large and small – about their interests and concerns, and the sorts of barriers they face in China.

The Department of Foreign Affairs and Trade (DFAT) will continue to collect this information throughout the negotiations.  Whether through face-to-face meetings, by phone, fax or e-mail, we are seeking information on both offensive and defensive interests from companies from all sectors.

For more information, contact the Australia-China FTA Task Force:

China FTA Task Force
Department of Foreign Affairs and Trade
RG Casey Building
John McEwen Crescent
Barton ACT 0221

For more information, contact the Australia-China FTA Task Force:

• e-mail: chinafta@dfat.gov.au
• fax (+61 2) 6112 2468

For information on the practical aspects of exporting to China, contact Austrade
 on 13 28 78, or visit www.austrade.gov.au